The euro rose to a six-month high in the wake of Emmanuel Macron’s convincing victory in the French election but the upside for the single currency could be short-lived, analysts warned.
In Asian trading on Monday, the euro rose as high as $1.1024 , its highest since 9 November, and also jumped to a one-year high of 124.58 yen against its Japanese counterpart.
But it had slipped almost 0.3% to $1.096 against the dollar by 5.30am GMT and lost a similar amount to the yen with traders remarking that gains had already been largely priced in thanks to Macron’s strong showing in the first round of voting two weeks ago.
“The market already priced in the victory of Macron,” said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo. “We saw some additional rise of the euro this morning, but considering the difficulty for Macron’s party to get a majority in the national assembly election, he may not bring higher growth.”
Europe breathes easier as #Macron eases to victory | CMC Markets https://t.co/fqsAumFmXO #forex #euro
— Michael Hewson (@mhewson_CMC) May 8, 2017
Looking at positioning in the euro, he said, “the market has squared its short positions, but there are no fresh reasons to take long positions, as there will likely be no new positive developments, and limited scope for upside for the euro”.
The muted analysis was partly based on an acknowledgment of the problems facing Macron, a 39-year-old former banker who has never held elected office.
He was economy minister under outgoing president François Hollande but failed to turn around the fortunes of the beleaguered government. He has pledged to reform the country’s rigid labour laws – long seen by pro-market economists as a hindrance to growth – but such change was beyond the Hollande administration, despite a lengthy struggle.
#Euro jumps >$1.10 for first time since Nov after Macron victory, but gains very small (+0.15%) as Macron victory already priced in. pic.twitter.com/Jh9XiTAo5L
— Holger Zschaepitz (@Schuldensuehner) May 7, 2017
Focus is likely quickly shift to the national assembly elections next month and whether Macron’s nascent movement, Le Marche!, can put together a ruling group.
Analysts at BlackRock in a note on Monday: “We expect the focus to shift to French legislative elections in June. These will be crucial for determining Macron’s ability to implement his economic program, which includes labour market reforms that would make it easier for French businesses to hire and fire.”
However, Kazushige Kaida, head of foreign exchange at State Street in Tokyo, was more positive and did not see “see any changes in the euro’s uptrend”.
On the equities market, the CAC40 in Paris rose strongly along with the Dax in Germany. The FTSE100 was set to rise by about 0.4% at the open.
The mood had been upbeat in Asia with Japan’s Nikkei bouncing more than 2% to its highest point since November 2015 after resuming following the long spring holiday.
Elsewhere in Asia, South Korea’s Kospi added nearly 0.6% to 2,254.06. Australia’s S&P/ASX 200 gained 0.5% to 5,863.50, the Hang Seng gained 0.2% to 24,516.55, but the Shanghai Composite lost 0.6% to 3,085.02.
Shares were also buoyed by rising oil prices after comments by the Saudi government indicating that production cuts will continue into the second half of the year.
